Contrary to expectations, Treasury has made good on its undertaking to reduce corporate tax, cutting the rate to 27% from 28% and has provided significant tax relief to individuals to counter the effects of inflation.
Total tax relief amounts to R5.2bn, with R3.5bn derived from no adjustment to the fuel levy or the Road Accident Fund levy and R2.2bn from expanding the employment tax incentive. It is the first time since 1990 that there has been no increase in the fuel levy.
The lower corporate tax rate, which comes into effect for tax years ending on or after March 31 2023, will be revenue neutral. That’s because tax broadening measures will restrict the use of assessed losses and limit interest deductions so that the reduced tax it will have no effect on net revenue collections. These measures will generate R1.1bn and R1.5bn, respectively, in the 2022/2023 fiscal year.
Personal income tax brackets and rebates also have been adjusted for inflation, with most of the relief targeted at the middle-income group. Inflationary relief is provided through a 4.5% adjustment in personal income tax brackets and rebates. Had no adjustments been made revenue would have increased by R13.5bn.
The primary rebate increases to R16,425 from R15,714 and the annual tax-free threshold for people younger than 65 years will increase to R91,250 from R87,300. Medical tax credits will increase to R347 a month from R332 for the first two members, and to R234 from R224 for additional members.
Excise duty on alcohol will increase by between 4.5% and 6.5%, generating additional revenue of R400m. Excise duty on tobacco products will rise by between 5.5% and 6.5% generating an additional R100m.
The employment tax incentive, which is aimed at encouraging businesses to employ young people, will be expanded through a 50% increase in the maximum monthly value, to R1,500 from R1,000, effective in the first 12 months and from R500 to a maximum of R750 per month in the second 12 months of eligibility from March 1.
Sure to be of consternation to the sugar industry is the increase in the health promotion levy (sugar tax) for beverages with more than 4g of sugar content per 100ml. This will be increased from 2.21c/g to 2.31c/g from April 1.
“Consultations will also be initiated to consider lowering the 4g threshold and extending the levy to fruit juices,” according to the Budget Review said.
Treasury also proposes to apply a flat excise duty of at least R2.90/ml to both nicotine and non-nicotine solutions used in vaping devices from January 1 2023.
Treasury has also proposed further measures for the disclosure of wealth by provisional taxpayers with assets of more than R50m. They will be required to declare specified assets and liabilities at market values in their 2023 tax returns.
“The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee,” the Budget Review states.
With regard to the controversial proposal regarding the tax treatment of retirement interest when changing tax residence, Treasury said it would initiate negotiations this year on its tax treaties with other countries to ensure that SA retains taxing rights on payments from local retirement funds.
In terms of the tax proposals for 2022, Treasury has highlighted several relating to pension, provident and retirement funds as well as technical amendments to corporate income tax.
Gross tax revenue of R1.598-trillion is forecast for 2022/2023 while that for 2021/2022 will be R181.9bn higher than the 2021 budget projection. The tax to GDP ratio reached 24.7% in 2021/22.
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